The Consumer Financial Protection Bureau’s focus on overdraft fees has now turned to credit unions and it’s cutting to the core.
The regulator has told Fiserv and FIS to provide anonymous information on NSF fees from credit unions using those companies’ core processing systems.
According to a client memo obtained by Credit Union Times, “The CFPB assures Fiserv that the order is intended to acquire data for research purposes only, under the bureau’s authority to monitor and maintain a fact-based understanding of the financial services marketplace.”
Fiserv says the bureau is seeking approximately 60 data elements about each hosted account processing client’s system settings.
“The requested data will capture a generic snapshot of deposit accounts and programs that includes overdrafts processing and identification, duration measurement, and fee assessment at the system level before any discretionary intervention,” the Fiserv memo says.
At its May 20 shareholder meeting in Brookfield, Wis., Fiserv CEO Jeff Yabuki told the Milwaukee Journal Sentinel, “What they’re trying to understand is what are the fees that are being charged and do they make sense.”
A CFPB spokeswoman told the newspaper that the bureau had previously looked at large financial institutions and now will examine how overdraft usage compares “at different types of depository institutions, including small institutions and credit unions.”
The Credit Union Journal has an in-depth piece this week about how the CFPB’s overall approach is “no longer academic.” Indeed, the bureau recently fined the $119 billion Regions Bank $7.5 million and the Alabama-based bank refunded $49 million to hundreds of thousands of customers as it agreed to a consent order over its practice of charging overdraft fees without prior customer permission.
Of course, the CFPB only has direct regulatory supervision over institutions of $10 billion in assets or greater, and that includes only five credit unions, but its influence with other regulators and the overall financial market can be considerable.
While only those two large core processors were mentioned, smaller operators should take notice. The CU Times article caught the attention, for instance, of the folks at CU*Answers, the Michigan-based CUSO that provides core processing to about 225 credit unions.
CEO Randy Karnes says he is encouraging his clients to audit their system configurations and results. “Make sure you can align your positive member intentions with the tactical processes used by your team and technical tools,” he says.
He also sees the CFPB move as a net positive. “The (bureau) reached out to Fiserv because they serve both banks and credit unions. I doubt it will become a common practice to audit credit union activities through vendors, but I do understand the lure of centralized data analysis over contacting and pecking through the programs of all the nation’s financial institutions one at a time.”
Compliance At A Cost
Fiserv raised the possibility that just complying with the CFPB request will be expensive enough to force it to raise fees to its clients, CU Times reports. Beyond that, any hit on NSF income could be dire.
CU Times executive editor Heather Anderson addresses that possibility in a recent column, before it came out that the CFPB has now moved in that direction. “However, the CFPB continues to present a real threat to credit unions. Fewer than 1,000 credit unions offer NCUA-approved, short-term, low-dollar loans. However, the CFPB has made clear it intends to also apply new payday loan regulations to transactions like overdrafts. Cutting off NSF revenue would be a kiss of death for many credit unions, regardless of size,” Anderson writes.
The issue first emerged in June 2013 when the CFPB issued a report that, among many other things, says an industry vendor that services 1,800 predominantly small institutions told the bureau that NSF and overdraft revenues accounted for 78% of its community bank and thrift clients' deposit service charges and 51% of its credit union clients' fee income in 2012.
That report used information provided voluntarily by credit unions and others. This time the bureau is digging deeper, asking Fiserv and FIS for data on overdraft fee usage from thousands of community financial institutions, although not by name.
Karnes at CU*Answers says he hopes the CFPB finds that credit unions are doing the right thing for their members, providing “something of value and something members understand and want.” He and others hope that avoiding the problems the CFPB has cited with big operators — including ignoring opt-in rules and ordering transactions in ways that maximize NSF income — will convince the bureau to not impose new rules that hit everyone equally.
“I’m hoping that our configuration options and election methods show that a surgical response is needed by the CFPB, not a blanket, throw-the-industry-under-the-bus kind of play,” Karnes says.
Yabuki echoed that sentiment in his comments at Fiserv’s annual meeting. “We have absolutely no problem making sure the fee structure makes sense,” he told the Milwaukee newspaper. “What we worry about is that this kind of research could end up with a unilateral, ‘We think this is bad,” without understanding how these fees are appropriate.”
Callahan & Associates EVP Jay Johnson agrees with Karnes that courtesy pay/overdraft protection can be a valued product if used properly. “A lot of credit unions worked very hard when the opt-in rules came out in 2008 to explain how it worked and the value and options members had,” Johnson says. “Many members — including high earners from what I've heard anecdotally in conversations with credit unions — opted in and use the service. I also like the idea about tracking the results of members who use it.”
Johnson says there have been discussions about “only XX allowed per month-type rules, which falls in line with many actions the CFPB has taken — good intent but not understanding how it can negatively affect consumers day to day. If they don't get the service from their credit union, they'll turn to payday lenders.”